It’s probably going to get lost in today’s news, now breaking out of Boston, but…
Down in DC today, Erskine Bowles and Alan K. Simpson are scheduled to announce yet another of their “debt reduction” plans. Yes, it includes chained-CPI; yes, it includes cuts to Medicare. What is doesn’t include is much in the way of new revenues. Here’s how the Washington Post describes today’s plan:
“seeks far less in new taxes than the original, and it seeks far more in savings from federal health programs for the elderly.”
Yeah, this public policy debate is going in the wrong direction.
Here’s a better suggestion: Let’s return to the good ol’ days when investment income was taxed at the same rate as wage income.
Why does US tax policy give preferential tax treatment to dividends, just because investors don’t have to get their hands dirty in order to receive the income? America is supposed to be the land of Horatio Alger (“pull yourself up by your bootstraps, work hard, and you’ll get ahead”). If our tax code is going to have different standards for earned versus unearned income, shouldn’t the “hard work” type of income be the one we prefer?
Instead, ever since the Bush tax cuts, dividends have been taxed at a much lower rate. And that economic distortion has led to all sorts of bad outcomes. (Read “What Mitt Romney Taught Us about America’s Economy” here.)
According to Congress’ Joint Committee on Taxation, this backwards tax preference will cost $616 billion in revenue over the next five years. (It’s one of the largest “tax expenditures” in the tax code.)
So, let’s call that $1.2 trillion over the next decade… and we’re well on our way toward debt reduction – without any cuts to Social Security or Medicare. Toss in another $516 billion worth of estate taxes (I’m doubling the five-year cost of that tax preference, as calculated by the Joint Committee). Maybe throw in $315 billion from ending the special tax treatment for life insurance annuities. And we’re well over $2 trillion in deficit reduction—all without a single cut to a single government program.
Now let’s apply a little “dynamic scoring”. (Haven’t heard of it? It what the GOP used, back in 2001, to argue that the country could afford the Bush tax cuts. Just assume that the tax code changes will improve the economy, and that will generate even more tax revenues.) Ok, you’re right… “dynamic scoring” didn’t work so well with the Bush tax cuts. But remember the Clinton tax hikes? Remember how the economy improved and the budget went from deficit to surplus?
Add in a little “dynamic scoring” (of the tax-HIKE variety) and… Presto Change-o! Suddenly, we’re doing a whole lot better than Simpson-Bowles.
Also in the message mix, today: a great, big “oops!” for the two Harvard economists whose research has bolstered the GOP’s austerity agenda. Turns out they made a mistake in their spreadsheet analysis. Yes, this is the very same analysis that Paul Ryan used, during last year’s presidential campaign, to argue that our slow economy was caused by national debt. [Hello? Most of us out here in the real world think the economy’s hurting because so many people are out of work.] Yes, these are the same two economists who testified before the Simpson-Bowles Commission.
Here’s the kicker: their mistake was discovered by researchers at the University of Massachusetts Amherst. Yes, public-funded higher education still works!
Watching the news this morning, we’re seeing incredible acts of dedication and bravery. Special thanks to everyone whose jobs take them into danger, all those who protect the rest of us. Thoughts and prayers are with the family of the MIT Police officer who was killed; with the MBTA officer who was injured; and with everyone else whose lives have been forever altered by the events of the past few days.
Writing this from the security of my own home, I salute you all.